European distribution ‘fragmented’ despite Ucits

A Hong Kong asset manager says the European funds distribution market remains fragmented despite Ucits as more Asian firms seek a foothold in the region.

Value Partners, which has had a London office since 2016, initially decided to replicate its flagship funds into Ucits format for European distribution. As early as 2012, for example, it registered its Classic Equity Fund, an Asia-Pacific (ex-Japan) equities product, in the UK, according to records from the Financial Conduct Authority (FCA).

“The idea was to distribute the funds through the distributors we already had a relationship with and then build that out. But we realised that simply replicating what our Asian investors like and selling that to European investors is too simplistic as a model and that clearly doesn’t work,” says Hendrik Von Ripperda-Cosyn, UK country head and senior director for EMEA sales.

Ripperda-Cosyn (pictured) was hired to lead the firm’s foray into the European market.

Regulatory challenges

Europe’s regulators may give Asia-based players a more difficult time than their Western counterparts, according to Ripperda-Cosyn.

“A manager coming from Asia or Latin America will always have to prove a little bit more when it comes to corporate governance and transparency than maybe a manager from Australia or America. In some cases it may not be fair, in some cases it might not be very understandable, but it is a fact in life.

“We just need to be very clear and very transparent and meet all the regulatory expectations that a European investor expects from any Western manager,” he told Portfolio Adviser sister publication Fund Selector Asia.

Ripperda-Cosyn believes that being a Hong Kong Stock Exchange-listed company is viewed favourably by regulators, who see an “extra layer of transparency” that unlisted companies do not have. Hong Kong rules and regulations are internationally recognised as “strict and right up there” with US and European standards, he said.

Ucits not a panacea

Ripperda-Cosyn said that it is a common mistake to think that a Ucits-compliant fund falls under one regulatory regime.

“Having a Ucits fund does kind of open doors and it is the lowest common denominator in terms of the kind of fund structure that investors are looking for. But if you actually want to distribute actively in any particular country, you will need to register the fund locally for local distribution.”

Fund registration differs across Europe. For example, some countries require asset managers to appoint paying agents and others require certain share classes, such as a clean rebate-free share class. Individual markets also have different standards for tax transparency.

“Unfortunately, the European market is a very fragmented and diversified market, and unlike the US for instance, it is not that clear-cut from a regulatory perspective.

“This is why it helps to have a local presence. It is very difficult to run something like that and have proper insight when you’re doing it from Hong Kong or Singapore.”

Demand for China?

Ripperda-Cosyn believes that there is increasing interest in China and Asia from European investors.

“The realisation has kicked in with the China A-shares inclusion [on global indices] and that China, despite the occasional blip in the market, is an increasingly important part of the global economy and market. Investors, as a result, are increasingly looking at adding exposure.”

The firm is now considering launching a “core-China” equity fund in Europe, which will focus on China A- and H-shares, he said.

Currently, the firm distributes five equity funds and one fixed income fund in Europe. These include two Greater China equity funds, a global emerging market (GEM) equity fund and a GEM bond fund. Both GEM funds were just launched last year in Europe.

Ripperda-Cosyn declined to disclose the amount of assets the firm has sourced from European investors.

Switzerland has been the target market due to the firm’s relationships with Swiss banks. However, funds are in the registration process in several European countries, including the UK, Germany and Luxembourg, he said.

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